Monday, June 28, 2021

Vendor Verification Method for Higher TDS Deduction

Cases of Deduction of TDS at Higher Rate (Current Discussion)

1. TDS deduction is to be carried out at a higher rate for non-filers of Income Tax Returns as explained by us here, as read under section 206AB of the Income Tax Act.

2. Further, as per Rule 114AAA, the PAN of a person will become inoperative if he fails to link it with Adhaar. Such invalidity of Aadhaar will mean deduction of TDS for such person in a manner that PAN has not been furnished (i.e. @ 20%) as per section 206AA of the Income Tax Act. (The due date for linking has been extended to 30th September 2021)

Checking if Payee falls under the Above Categories

1.Register on the Reporting Portal ( by logging in to using login credentials of TAN and clicking on the link, “Reporting Portal”, which is available under “Pending Actions” Tab of the e-filing Portal.

2. After being redirected to the Reporting Portal, select Compliance Check (Tax Deductor & Collector) under Form Type.

3. Enter details of the principal officer by clicking on “Add Principal Officer” button. 

4. After submission of registration request, email notification will be shared with the Principal Officer along with ITDREIN details and login credentials.

5. After successfully logging in, link to the functionality “Compliance Check for Section 206AB & 206CCA” will appear on the home page of the Reporting Portal. Click on "PAN Search"

5. The following details will be visible about the PAN

- Financial Year: Current Financial Year
- PAN: As provided in the input.
- Name: Masked name of the Person (as per PAN).
- PAN Allotment date: Date of allotment of PAN.
- PAN-Aadhaar Link Status: The response options are "Linked", "Not Linked", "Exempt" or "Not-Applicable" (PAN belongs to non-individual person).
- Specified Person u/s 206AB & 206CCA: The response options are "Yes" (PAN is a specified person as per section 206AB/206CCA as on date) or "No" (PAN is not a specified person as per section 206AB/206CCA as on date).

6. You can also do a "Bulk Search" of up to 10,000 PAN by downloading the CSV Template and uploading the filled in file.


Saturday, June 19, 2021



 ITAT Agra held that  Instruction No. 03/2017, dated 21-2-2017,to the Assessing Officers are statutory and binding on revenue, therefore the Assessing Officer can not tax cash deposit in bank account during Demonetization Scheme, 2016, as unexplained income , the amount less than  2.5 lakhs by and Housewife out her savings since last several years to meet family emergency needs in the case of  Smt Uma Aggarwal v ITO 1(3) Gwalior  [2021] 127 735 (Agra - Trib.)

Saturday, May 29, 2021

GST Amnesty Scheme and Late Fee Waivers (COVID)

At the 43rd GST Council Meeting on 28th May, 2021, the council announced the following relief measures in the form of an Amnesty Scheme that provides relief from late fee for delayed filing of GSTR-3B.

Amnesty Scheme - Late Fee Waiver for Pending GSTR-3B

The late fee for non-furnishing of GSTR-3B from July 2017 to April 2021 has been reduced as under:

(i) Maximum of Rs 500 per return for taxpayers who had NIL GST liability

(ii) Maximum of Rs 1000 per return for those with GST liability

The reduced rates shall apply only if the returns are filed between 01-Jun-2021 to 31-Aug-2021.

Late Fee Linked to Turnover for Prospective Periods

Late fee for delayed filing of GSTR-3B and GSTR-1 will be capped for all future returns as follows.

1. NIL tax liability in GSTR-3B or NIL outward supplies in GSTR-1: Maximum Rs 500

2. Other than NIL tax liability, the late fee would be capped based on Aggregate Annual Turnover of the preceding financial year, as follows.

(a) Up to Rs 1.5 crores: Maximum of Rs 2,000
(b) Between Rs 1.5 crore to Rs 5 crore: Maximum of Rs 5,000
(c) Above Rs 5 crores: Maximum of Rs 10,000

3. GSTR-4 by Composition Taxpayers: Maximum Rs 500 per return, if tax liability is NIL in the return, and Rs 2000 if liability is other than NIL.

4. Delayed furnishing of GSTR-7 to be reduced to Rs.50/- per day; capped to a maximum of Rs 2000 per return.

Interest & Late Fee Relief for March, April & May 2021 Returns for GSTR-3B

In addition to the relief measures already provided, the following further relaxations are being provided:

1. If Aggregate Turnover up to Rs. 5 crores:

a) Interest for March & April 2021:
- First 15 days after due date: NIL interest
- Next 45 days for March and 30 days for April: 9% p.a.
- 18% p.a. interest thereafter

b) Late Fee for March & April 2021:
- NIL for 60 days after due date of March
- NIL for 45 days after due date of April

c) For May 2021:
- NIL interest for first 15 days from the due date
- 9% p.a. interest for next 15 days
- No Late Fee for up to 30 days delay in furnishing GSTR-3B for monthly taxpayers

2. Aggregate Turnover > Rs. 5 crores:

a) Interest @ 9% p.a. for first 15 days after due date for GSTR-3B for May

b) Late Fee Waiver for up to 15 days delay in filing GSTR-3B for May

3. Other Extensions

a) GSTR-1/ IFF due date for May 2021 extended by 15 days

b) GSTR-4 due date for FY 2020-21 extended to 31-Jul-2021

c) ITC-04 due date for Jan-Mar 2021 extended to 30-Jun-2021

d) Cumulative application of rule 36(4) for availing ITC for tax periods April, May and June, 2021 in the return for the period June, 2021.

e) Allowing filing of returns by companies using EVC till 31-Aug-2021.

Annual Return FY 2020-21

(i) Self-certification of reconciliation statement in GSTR-9C - CA certification not required

(ii) GSTR-9/9A optional if aggregate annual turnover is up to Rs 2 crores

(iii) GSTR-9C mandatory if annual aggregate turnover above Rs 5 crores

Friday, May 21, 2021

How to Buy Medical Insurance in India: Quick Tips

1. Minimum coverage of 6x your monthly in-hand salary, but nothing less than Rs. 5 Lakhs

2. The insurer should have most big brand hospitals of your city in its cashless network

3. Pick the insurer with a higher claim settlement ratio (above 90%)

4. Check if you want a policy for self (individual) or floater (including family members). If there is someone in the family with health issues, take an individual policy for them and do not club them in floater.

5. Waiting Period on the policy is the initial 2-3-4 years when certain illnesses will not be covered. Check this and the list of illnesses to see if you have any chances of getting any of these soon.

6. Based on your needs in the next few years, you may want to consider coverage of:
- existing illnesses
- maternity and childcare needs
- day care procedures
- critical illnesses

7. Critical illness coverage - specified 20-30 diseases where the sum assured is paid on diagnosis and submission of bills for claim is not required - take a cancer coverage if you have family history of the disease - serious illness coverage can be taken separately with a life insurance instead of health insurance for a cheaper premium

8. Room Rate: Check if they will give you an individual room and not a bed in the general ward; also room rate may normally be defined as a % of the total cover, or be defined as a cap. Eg 1% of a 5L policy or a cap of 3k per day. If hospitals around you charge more per day, please insist on a higher room rent. Other medical expenses may be linked to room rent. Thus, you may have to co-pay all expenses in proportion to room rent coverage by the insurer.

9. Co-Payment: You ideally want no or lower co-payment

10. Pre and Post Hospitalization expenses should be covered for 60 to 180 days

11. No claim bonus will enhance coverage at a low cost for future years

12. Zonal coverage covers only in a particular city, and Pan India covers treatment anywhere in the country

13. Reasonable and customary clause reimburses as per rates in other hospitals around you, which may be cheaper - so avoid

14. Between a Top up and Super Top Up, buy the latter - you can buy from another insurer on the base policy

15. If you are in employment, and leaving the service, convert your existing group insurance plan to an individual plan so that you don't have a waiting period in the new policy that you take
16. Purchasing a health insurance also gives you tax saving deduction under section 80D of the Income Tax Act

Thursday, May 20, 2021

Extended Income Tax Due Dates 2021

The Income Tax Department has issued a Circular No. 9 dated 20-May-2021 by which a number of statutory deadlines for Income Tax Returns, TDS Return, SFT Return, Tax Audit Reports have been extended to provide relief owing to the pandemic.

A few of the important due dates are reproduced below. You may refer to the complete circular here.

S.N. Statutory Filing Prev. Due Date New Due Date
1 Form 61A- Statement of Financial Transactions (SFT) 31-May-21 30-Jun-21
2 TDS Returns Q4 FY 2020-21 31-May-21 30-Jun-21
3 Issue of TDS Certificates in Form 16 for FY 2020-21 15-Jun-21 15-Jul-21
4 Income Tax Return AY 2021-22 (non audit cases) 31-Jul-21 30-Sep-21
5 Filing of Tax Audit Reports AY 2021-22 30-Sep-21 31-Oct-21
6 Income Tax Return AY 2021-22 (audit cases) 31-Oct-21 30-Nov-21
7 ITR for Transfer Pricing (Audit a month prior) 30-Nov-21 31-Dec-21
8 Belated Tax Returns AY 2021-22 31-Dec-21 31-Jan-22

Wednesday, May 19, 2021

TDS Deduction at Higher Rate for Non Filers of ITR

Section 206AB of the Income Tax Act, 1961 provides for deduction of TDS at a higher rate for deductees who have not filed their Income Tax Returns for each of the last two assessment years for which the due date of filing ITR has also expired, and they had an aggregate TDS and TCS of over Rs. 50,000 in each of those two years.

Effective Date: 1st July, 2021

Eligible Deductor: Person making payment to a "Specified Person" deductee

Specified Person (Deductee): Any person who:
(i) has not filed the ITR for the past two assessment years preceding the current year of tax deduction; and
(ii) the due date of filing u/s 139(1) for the preceding assessment years has also expired; and
(iii) such person has an aggregate TDS and TCS of at least Rs. 50,000 in each of the preceding two assessment years

A non-resident person who does not have a Permanent Establishment (PE) in India would not be covered in this definition.

Higher Rate of TDS Applicable: The applicable higher rate of TDS/TCS under the provisions of these sections would be the highest of:
(i) 2x the rate specified in the Act or 2x the rate in force; or
(ii) 5%

If the person does not have a PAN and TDS is required to be deducted at a higher rate u/s 206AA, then the rate of deduction would be highest between 206AA and 206AB.

Payments Excluded from Higher Rate Deduction
192: Salary
192A: Higher EPF Withdrawal
194B: Lottery Winnings
194BB: Winning from Horse Races
194LBC: Securitization Trust
194N: Cash Withdrawal

Payments Covered for Higher TDS Deduction (All TDS Sections other than Exclusions above)
All payments covered under the following indicative list of sections are included. However, this is not an exhaustive list.

194: Dividend
194A: Interest other than on Securities
194C: Contractor / Sub-Contractor
194H: Commission or Brokerage
194I: Rent
194J: Fees for Professional or Technical Service
194Q: Payment to Resident for Purchase of Goods

Applicability for TCS
Section 206CCA of the Act would apply on any sum or amount received by a person (collectee) from a Specified Person. The proposed TCS rate in this section is higher of the following rates:
(i) 2x the rate specified in the relevant provision of the Act; 
(ii) 5%

Monday, May 17, 2021

How to Raise Funds in India using SAFE Notes?

What are SAFE Notes?

SAFE stands for Simple Agreement for Future Equity, and SAFE notes are a form of convertible security issued by very early start-ups to raise funds in their initial seed stage from individual angel investors. At this stage, it may not be possible to assign a value to the idea or minimum viable product. Thus, with no pre-money or post-money valuation, SAFE notes are an option to raise funds.

It is a contract between the start-up company and the angel investors to issue them equity in the company at a future date at a valuation determined in the future subject to fulfilment of certain conditions with respect to valuation thresholds achieved by the company or capital infusion in a later round by qualified institutional Venture Capital (VC) funds.

Convertible notes are a form of debt till conversion into equity, and may required to be repaid to the investors on maturity if qualified financing is not received in the future. This is an issue for founders as they are uncertain about the future of their start-up. Thus, SAFE notes come as a form of convertible note which is not a debt, but just an obligation to convert to equity on meeting certain conditions in the future.

This form of fundraising instrument was developed in 2013 in the USA by Startup Accelerator, Y Combinator (YC). 

What are the important features of SAFE Notes?

No Interest as Not Debt: These are non-debt convertible securities. They are simpler than the terms of a convertible note which may attract payment of interest till conversion at a particular rate, and other clauses which may deter future equity investors. Thus, SAFE notes don't require payment of any interest.

Simply Drafted & Standard: SAFE Agreements are normally less than 5 pages long, and several usable templates are available online for use by Founders without needing a lawyer to draft such agreements from scratch. Therefore, negotiations using SAFE are also faster unlike other fundraising rounds that take no less than 3-4 months.

Convertible to Equity: They can be converted to equity shares in the future at a discount, which means initial investors may get equity from the start-up in the future at a price much lower at which investors put money in the subsequent rounds.

Discount or Valuation Cap: Convertible securities include a "Discount" that can be used to calculate the value of conversion at a qualified event in the future when they are due for conversion to stock. Whereas, a "Valuation Cap" sets the maximum price that can be used to calculate the conversion price. At conversion, the investors can take advantage of either the discount or the valuation cap, whichever is more favorable to him.

No Valuation: These instruments are issued without carrying out valuation at the time of issuance, as valuation is deferred to future rounds.

Maturity: As it is not debt, there is no specified term of maturity other than conditions for conversion in the future.

Risky for Investors: If the start-up fails, the amount invested may never convert to equity in the future.

Minimal Dividends: Dividends attached to SAFE notes are negligible and notional only.

Lack of Legal Library in India: India does not have enough case laws or easily referable legal library of complications that SAFE notes can bring in the future, or if there is a possibility of regulators in India (specifically the Registrar of Companies or Ministry of Corporate Affairs) taking a stance against them.

What are the Benefits of Raising Capital through SAFE in comparison to a Priced Round?

Any fundraise from investors normally brings with itself a Term Sheet later translated into a detailed Share Subscription & Holders Agreement (SSHA) where investors seek the following rights, none of which are given to investors by raising funds through SAFE.

(i) Pre-Money Valuation, Post-Money Valuation
(ii) Board Seat
(iii) Consent Rights
(iv) Founders' Lock-in
(v) Tag Along Rights
(vi) Drag Along Rights
(vii) Anti Dilution Rights
(viii) Voting Rights
(ix) Debt from Founders' Restrictions
(x) Information Rights
(xi) Creation of ESOP Pool
(xii) Employment Agreements with Founders

The execution costs for an SSHA are huge in lawyer and professional fees, with a timeline of minimum 3-4 months. Therefore, raising funds through SAFE is swifter and inexpensive.

How can SAFE Notes be issued in India?

In India, the VC Fund 100x VC has popularized iSAFE, known as India SAFE. It takes the legal form of Compulsorily Convertible Preference Shares (CCPS) which carry a non-cumulative dividend of 0.0001%, and preference over equity investors at the time of liquidation.

As per the open source agreements drafted by, iSAFE notes are automatically convertible into equity on occurrence of any of the following specified liquidity events 
(i) next pricing or valuation round;
(ii) dissolution, merger or acquisition, etc.;
(iii) at the end of 3 years from date of it’s issue.

Any subsequent issue of iSAFE may be done at rights pari-passu to existing iSAFE holders.

If the investment fails, the investor can book a capital loss on the shares by selling them at negligible cost and utilize that capital loss to offset other capital gains.

What process is to be followed for issuing iSAFE?

The investor and the startup agree on the investment amount. On completion of negotiations, an iSAFE agreement is signed, post which secretarial formalities such as those involved in issue of CCPS are initiated including:

- Amendment of Authorized Capital in the MOA
- Alteration of AOA to include raising of funds through private placement and/or preferential issue of preference shares
- Holding of Board Meeting and EGM to approve the amendment and proposed issuance of CCPS
- Filing of MGT-14, SH-7
- Receipt of funds in a separate bank account
- Filing of PAS-3, drafting of PAS-4, etc.

The preference shares are issued at par, thus there is no premium, and therefore no valuation required from a registered valuer.

The outstanding iSAFE note would be referenced on the company’s cap table like any other convertible security such as a warrant or an option. In the next round which is priced, the iSAFE CCPS will convert to equity as per the agreed terms and the cap table will be finalized through the SSHA. Once the SSHA is in place, it will override the iSAFE.

What are the Types of iSAFE Note Agreements?

(i) Fixed Conversion at Future Date: A pre-defined percentage of equity holding is committed to the Investor at a future date

(ii) Post Money Valuation Cap, No Discount: Say the investor invests Rs. 2 crores at a valuation cap of Rs. 20 crore. Then, if the next round is priced at a post-money value of Rs. 25 crore, the dilution and conversion to equity for the iSAFE investor is capped at 10% being 2/20.

(iii) Discount, No Valuation Cap: If the next round is valued at pre-money value of Rs. 10 crores, and the discount agreed is 20%, then an iSAFE investor of 2 crores will convert at 2/8 i.e. 25% equity. There is no valuation cap.

(iv) Post Money Valuation Cap with Discount: A mix of both the above options built in the same instrument. Discount applies only to pre-money value.

(v) MFN Only (Most Favored Nation), No Valuation Cap, No Discount: Allows the iSAFE investor to accept the most favorable terms as applicable to the subsequent investor.

Specified Financial Transactions (SFT) Filing - Form 61A

There is a reporting requirement for reporting of all specified financial transactions undertaken during the previous financial year i.e. FY 2020-21. A Return of Statement of Financial Transaction (SFT) is required to be filed in Form 61A by 31-May-2021.

Transactions Required to be Reported

(The below table excludes reporting requirements for Banking Companies, Mutual Funds, Nidhi Companies, NBFCs and Authorized Persons as per FEMA)

Sr. No. Reporting Person Nature of Transaction Value of Transaction
1 Company or institution issuing bonds or debentures Receipt from any person for acquiring bonds or debentures issued by the company or institution (other than the amount received on account of renewal of the bond or debenture issued by that company). Amount aggregating to Rs. 10 Lakhs or more in a financial year
2 Company issuing shares Receipt from any person for acquiring shares (including share application money) issued by the company. Amount aggregating to Rs. 10 Lakhs or more in a financial year
3 Company listed on a recognised stock exchange purchasing its own securities Buy back of shares from any person (other than the shares bought in the open market) Amount aggregating to Rs. 10 Lakhs or more in a financial year
Cash and other Transactions
4 Any person who is liable for audit under section 44AB of the Act Receipt of cash payment for sale, by any person, of goods or services of any nature  exceeding Rs. 2 Lakhs
5 Payments made by any person of an amount aggregating to- Payments made by any person of an amount aggregating to-  
(i) one lakh rupees or more in cash; or (i) one lakh rupees or more in cash; or
(ii) ten lakh rupees or more by any other mode, against bills raised in respect of one or more credit cards issued to that person, in a financial year. (ii) ten lakh rupees or more by any other mode, against bills raised in respect of one or more credit cards issued to that person, in a financial year.
Dividend Income
6 A company Dividend Income No threshold
7 A company Deemed Dividend as referred to under Section 2(22)(a) to (e) No threshold
Foreign Currency Transaction
8 Expense in foreign currency through a debit or credit card or through issue of Travellers Cheque or Draft or any other instrument. Aggregating to 10 lakh rupees or more in a financial year.  

Non-furnishing of SFT within the due date may attract a penalty of Rs. 500 per day.

Wednesday, May 12, 2021

Can a GTA Choose Forward Charge under GST instead of RCM?


In respect of GTA, the liability to pay GST falls on the recipients under reverse charge in most cases. However, the GTA may opt to pay under forward charge.

If the GTA opts forward charge, a 12% GST may allow for claim of ITC, and opting for lower rate (i.e. 5% GST) may not allow ITC claim.


Meaning of GTA: Goods Transport Agency (GTA) being any person who provides service in relation to transport of goods by road and issues consignment note.

Applicable Section: Section 9(3) of the CGST Act

Service Covered under RCM:
- Goods Transport Agency (GTA) by road
- who has not paid Central Tax @6% (i.e. who has opted for GTA rate applicable of less than 12% on its output service)
- to Specified Recipients (listed below)

Includes Allied Services: GTA service includes other ancillary services such as loading, unloading, packing, trans-shipment, temporary warehousing, etc. if provided as part of transportation.

Recipient of Service for RCM Applicability:
(a) any factory registered under or governed by the Factories Act, 1948
(b) any society registered under the Societies Registration Act, 1860
(c) any co-operative society established by or under any law
(d) any person registered under GST
(e) any body-corporate established by or under any law
(f) any partnership firm or AOP
(g) any casual taxable person

Excluded from RCM if Recipients are any of the following:
(a) a Department or Establishment of the Central Government or State Government or Union territory
(b) local authority
(c) Governmental agencies, which have taken registration under GST only for the purpose of deducting TDS and not for making a taxable supply of goods or services.

Invoicing by GTA in case of RCM: Issue tax invoice specifying that the tax is payable on reverse charge basis by the recipient

ITC Under RCM: The supplier shall not be eligible to claim input tax credit of GST paid on goods or services used to make supplies on which the recipient is liable to pay tax.

GST Return Filing: Invoice-wise details of such supplies covered under RCM shall be reflected in Table 4B of Form GSTR-1, and in Table 5C of GSTR-9.


If the GTA is a company registered under GST, it has the following options to pay GST, which shall remain uniform for the entire financial year.

1) 12% GST with claim of ITC
2) 5% GST with no claim of ITC

If the GTA chooses the option other than 12%, it may get covered under RCM and would not be allowed to claim ITC.

Tuesday, May 11, 2021

When can a Startup Raise Venture Debt Funds?

- Already raised Series A round (typically between 20 to 30 crores or USD 4 to 5 Mn)
- Approx 15-18 months to go for Series B fundraise
- Unit economic positive with a net positive contribution margin

Use of funds
- Working Capital financing
- New product or vertical development
- Not for expensive hire in management or marketing burn

- No dilution in equity or addition to cap table
- No valuation required
- Leaner Due Diligence

Amount: Typically between 2 to 6 crores

Cost: 14-15% p.a.

Important VC Debt Funds in India
- Trifecta Capital
- InnoVen Capital
- Alteria Capital

Friday, May 7, 2021

Employee Deposit Linked Insurance (EDLI) Scheme

If any private sector employee covered by PF has unfortunately passed away while in service in these difficult times, while there may be not much that any employer can do to fill in the loss for their family, however, it may be important for the employer to educate their family and help process the life insurance claim available to such employee under the Employee Deposit Linked Insurance (EDLI) Scheme.


EDLI is an insurance cover provided by the Employees Provident Fund Organisation (EPFO) for private sector salaried employees. The family/nominee of the deceased, who was still in active service at the time of passing away, receives a lump-sum payment as life insurance proceeds from the EPFO in addition to the entire sum from their PF balance.

This scheme was launched in 1976 and applies to all organisations registered under the Employees Provident Fund and Miscellaneous Provisions Act, 1952. These private sector organisations by default contribute as part of the PF contribution under the head EDLI for all employees.

Amount of Insurance Cover

The minimum death cover is Rs. 2.5 lakhs and the maximum cover is Rs. 7 lakhs.

The amount is calculated as:

Avg. Monthly Salary of past 12 months (Basic + DA up to a maximum of Rs. 15000 p.m.) x 35
Add: 50% of Avg. PF Balance in past 12 months (up to a maximum of Rs. 1.75 lakhs)

Thus, the death cover is capped at a total amount of Rs. 7 lakhs.

Documents to be Submitted with EPFO

1. Consolidated Claim Form (for all EPF, EPS and EDLI claims) - Form 5 IF only for EDLI
2. Death Certificate
3. Nominee Form / Nomination Certificate / Guardianship Certificate
4. Proof of Active Service from Employer
5. Cancelled Cheque of Nominee

All documents are to be attested by the employer and submitted manually at the jurisdictional EPFO. Applicants are sending them through Speed Post due to lockdowns in the country.

The claims are supposed to be settled in 30 days.

The Scheme can be read about here. The information has not been updated by the EPFO on their official website yet.

Monday, May 3, 2021

MCA Compliance Relief (up to 31 Jul 2021)

The Ministry of Corporate Affairs (MCA) has issued various General Circulars dated 03-May-2021, offering the following reliefs in compliance deadlines in light of the disturbing times caused by the pandemic.

1. No Additional Fees up to 31-Jul for forms due in Apr & May: The time limit for filing of all forms by Companies and LLPs due between 01-April and 31-May-2021 is extended to 31-July-2021 with payment of just normal fees and no additional fees. This relief does not apply to forms related to charges such as CHG-1, CHG-4 and CHG-9.

2. Days of Apr & May not Counted for Charge Creation/Modification Forms: For forms relating to creation and modification of charge only (and not satisfaction of charge), i.e. applicability on Forms CHG-1 and CHG-9 - where the date of creation or modification of charge is before 01-Apr-2021, but the due date for filing of the form has not expired as on 01-Apr-2021, the period beginning from 01-Apr-2021 to 31-May-2021 shall not be considered for the purpose of counting number of days for filing of the form. In case the form is not filed within such period, the first day to be counted after 31-Mar-2021 shall be 01-Jun-2021 u/s 77 and 78 of the Companies Act 2013. Similarly, for forms due on or after 01-Apr-2021, the days shall count from 01-Jun-2021.

3. Board Meetings with Max 180 Days Gap: The gap between any two Board Meetings due to be held between April to September 2021 may be 180 days instead of 120 days.


GST Compliance Relief - April & May 2021

In view of the pandemic, the CBIC released Notification Nos. 08/2021 - Central Tax to 14/2021 - Central Tax dated 01-May-2021 by which several relaxations in GST compliance deadlines have been provided. 

The same are summarized below.

A. Interest & Late Fee Relaxation for GSTR-3B

1. Aggregate Turnover > Rs. 5 crores in preceding FY
- Period: March and April 2021
- Late Fee waived off for the first 15 days from the due date of the return
- Interest @9% for the first 15 days from the due date
- Interest @18% for the period thereafter

2. Monthly Taxpayer with Aggregate Turnover =< Rs. 5 crores in preceding FY
- Period: March and April 2021
- Late Fee waived off for the first 30 days from the due date of the return
- Interest NIL for the first 15 days from the due date
- Interest @9% for the next 15 days
- Interest @18% for the period thereafter

3. Quarterly Taxpayer with Aggregate Turnover =< Rs. 5 crores in preceding FY
- Period: Jan to March 2021
- Late Fee waived off for the first 30 days from the due date of the return
- Interest NIL for the first 15 days from the due date
- Interest @9% for the next 15 days
- Interest @18% for the period thereafter

B. ITC-04: Goods Sent on Job Work (Jan-Mar 2021)

The Return in Form ITC-04 for details of goods sent on job work or received from job worker by the principal manufacturer has been extended to 31-May-2021.

C. Additional ITC Availment up to 5% - Cumulative for Apr & May

The condition of restricted availment of ITC up to 5% of eligible credit details of which have not been furnished by the supplier in the GSTR-1 or IFF shall apply cumulatively for the period of both April and May, 2021.

While filing Form GSTR-3B for May, 2021 a cumulative adjustment may be done for additional ITC up to 5% for both the months together.

D. Extension of Other Compliance Due Dates

Any time limit for any other action or compliance within the GST laws, if falling between 15th April to 30th May 2021, shall be deemed to extended to 31st May 2021.

This shall include due dates for issuance of notices, sanction of orders, filing of appeals, furnishing of returns, applications, etc.

E. Updated GST Compliance Calendar for May 2021

20th May: April Monthly GSTR-3B for Turnover > 5 crores
25th May: April Payment in QRMP through PMT-06 if Turnover =< 5 crores
26th May: April Monthly GSTR-1 for Turnover > 5 crores
28th May: April IFF (Optional) for QRMP Scheme
31st May: April Return in GSTR-6 for Input Service Distributors
31st May: Annual Return FY 2020-21 in GSTR-04 by Composition Dealer

Thursday, April 15, 2021

Why Do Companies Register in Delaware, USA?

The Delaware state in the USA is a hub for corporate registrations in the country for major multinationals and start-ups. This can be seen from the fact that over 60% of the Fortune 500 companies today are registered in Delaware, and almost all major IPOs in the country over the past few years are from companies with operations in this state. Here's evaluating the major reasons why companies choose to have Delaware entities.

Investor Friendliness

Non-Disclosure of Shareholder Details: The annual filing requirements in the state do not require disclosure of all list of shareholders with their identifying details, which helps the companies maintain opacity with respect to multi-level holding structures and beneficial ownerships, which may be preferable to investors who wish to maintain secrecy around them.

Preference by VC and Angel Networks: Owing to the state's long history of being focused on attracting businesses to register here and how all major companies with global ambitions tend to prefer the tax structure offered by Delaware, such as tech giants who have scalable models and high growth potential, the VCs and Angel Investors prefer LLCs and C-Corps registered in the state of Delaware as a business decision for tax optimization and access to robust legal settlement in case of disputes. As an example, Facebook, Amazon, Alphabet (Google), Ford, Coca Cola... all have their registered offices in Delaware.

Easy Registration: Companies can be registered in less than 24 hours, as well as within 2 hours if really urgent. Set up process is swift, online and bureaucracy free.

Legal Landscape

Judges over Jury: Delaware has a system of Courts of Chancery, which means decisions on matters presented to the Court are taken by a Judge and not by a Jury, which may have a collection of people who are not experts in legal and new age business problems.

Robust Case Library: With all major companies registered in Delaware, the library of case laws in the state is the most expansive and robust, with judgements on matters available for reference by the judges. As all tech giants prefer to register here, the issues of conflict brought to the state are dynamic and new age, relevant to today's times and not archaic. This ensures swifter dispute resolution.

Knowledge of Lawyers and CPAs: All CPAs and Lawyers in the US study the laws of their state and of the state of Delaware. Thus, professionals across the USA are aware of Delaware business laws.

Tax Structure Benefits

No State Tax if Operating Outside: USA has a Federal Tax Rate of ~21% and a State Tax Rate of ~9%. Companies registered in Delaware but operating outside the state are not liable to pay the State Tax in Delaware. They register as foreign entities in other states and pay the State Taxes in the host states.

Franchise Tax: However, the States in which the companies operate, they pay royalties to the entities in the state of Delaware for right to use the Franchisee. Such Franchise payments are taxed in Delaware between the range of USD 200 to 20,000 at a flat fee applicable to the company, and the royalty payments are allowed as expense in the host states, thus saving the company taxes in the host states due to booking of business expense payable to the entity in Delaware.

Suitability: Such Delaware entities are suitable only to companies with ambitions and operations of high scale with heavy investments from VC funds and Angels expected, and a planned exit IPO in a few years. Registering in Delaware does not suit small business enterprises with local markets.


This piece has been prepared solely based on our research and interest in the topic and should not be taken as legal advice. You may contact us separately for a detailed analysis on your suitability for registration in Delaware or any other place in the world.

Friday, March 26, 2021

Why Do Indian Start-ups Register in Singapore

Singapore is known to be a compliance-oriented, corruption-free economy with accommodative regulations towards start-ups, which are very pro-growth and innovation friendly. It is currently rated as the second easiest place in the world to do business by the World Bank, and is the only Asian nation to receive an AAA credit rating from all three major credit agencies. It is also the fourth largest financial center in the world, with strong institutions and prudent economic management.

A number of tech start-ups observe while approaching marquee Venture Capital (VC) funds that the investors often request for or prefer a Singapore registered entity to fund. At this juncture, it's important for these businesses to identify the reasons for such ask and how the overall business as well as the investors could benefit from such a structure.

Here's identifying a few such reasons.

A. Tax Benefits in Singapore vis-a-vis India

1) Corporate Tax Rate of ~17% in Singapore as against Indian tax rates of 25-30% for resident entities and 40% for foreign entities. 

2) Indirect Tax, GST/VAT rate of 5% to 28% and more in India, as against a flat ~7% in Singapore.

3) Capital Gains Tax rate between 10-20% in India as against 0% in Singapore. This is one of the most attractive reasons why investors invest through Singapore, as they can substantially save on tax costs at the time of exit.

It is also important to note here that the Indian government attempts to tax capital gains on sale of shares in companies which have substantial business operations in India. However, investors continue to register in other geographies as at least some precautionary safeguard against such capital gains tax by incorporating a company that holds the intellectual property rights to the tech product or software in a foreign land. An Indian entity is registered that uses such intangible to operate in India, while paying royalty for use of the actual intangible to the Singapore entity, which may be its holding company, or an associate enterprise.

4) Dividend Tax: There are no taxes on dividends in Singapore which follows a one-tier corporate tax structure. However, in India, profits are first taxed in the company's hands, and the dividends distributed are then taxed also in the hands of the shareholders/investors with minor exemptions which only benefit very small shareholders. Thus, there is double taxation of dividends in India as per the current structure.

5) Tax Exemption: For the first three years, newly incorporated companies in Singapore can enjoy full tax exemption on their first Singapore Dollar 100,000 of chargeable income. Beyond such threshold, 8.5% tax on the next S$ 200,000 of the chargeable income.

6) Double Tax Avoidance Agreements: Much like India, Singapore also has Double Tax Agreements (DTAA) with more than 50 countries, which ensure that the tax payers do not end up paying taxes in two countries. The benefits being avoidance of double taxation, lower withholding taxes, preferential tax regime.

B. Administrative Benefits in Singapore vs. India

1) Company Incorporation Time: In Singapore, a company registration takes 1-2 business days, which considering all paper work requirements, may extend to a maximum of one week for all practical purposes. However, in India, it practically takes a minimum of 3 weeks to set up a private limited or an OPC. The compliance while registration and the process is also more seamless and one-window in Singapore, which India is attempting to reach, but is yet to.

2) Full Foreign Ownership: Ownership of 100% of shares is allowed in a Singapore company by an Indian citizen or an Indian company. The entity does not need any local partners or shareholders hence there is no dilution of control and one can freely choose the type of capital structure they want for their company. For every Indian company, there has to be at least one Director resident in India for over six months in a financial year. The FDI norms of India also do not allow 100% foreign ownership in a number of sectors discussed later.

3) Listing on Stock Exchange: The Singapore Stock Exchange (SGX) is inviting Indian companies to list on their exchange and raise capital. SGX can play a vital role in providing Indian companies with access to capital markets overseas. The listing requirements in Singapore are more lenient in comparison to the regulatory requirements by SEBI in India.

4) No Corruption: Singapore has economic-political stability and a government structure that is ranked highly on rankings for no-corruption or red-tapism.

5) Intellectual Property & Arbitration Laws: The IP protection laws in Singapore are more mature and robust owing to the number of international companies registered in the geography that are intangible tech product focused. In addition, it is noticed often that in international contracts between parties from different countries, the place for arbitration is preferred to be Singapore as the arbitration laws there are more mature in comparison to India. Further, the arbitration awards in Singapore enjoy more sanctity in comparison to India where almost every award is challenged in the court of law, and arbitration is seen to an expensive process only to delay the resolution process.

6) Access to Venture Capital Funds: A huge number of international VC funds are registered within Singapore, and prefer to invest through this route. Thus, access to a network of mature and upcoming start-ups, VC funds, angel investors, etc. is another big attraction for founders.

C. Foreign Direct Investment (FDI) Restrictions in India

The following are the sectoral caps on FDI (percentage of shareholding as can be held by a foreign company) in India effective October 2020 by which government approval may be required through the RBI before a foreign partner can invest in India in any such industry.

News & Media
Terrestrial Broadcasting FM (FM Radio): 49%
Up-Linking of ‘News & Current Affairs’ TV Channels: 49%
Uploading/Streaming of News & Current Affairs through Digital Media: 26%
Publishing of newspaper and periodicals dealing with news and current affairs: 26%
Publication of Indian editions of foreign magazines dealing with news and current affairs: 26%

Banking & Finance
Infrastructure companies in Securities Markets, namely, stock exchange, commodity exchanges, depositories and clearing corporations in compliance with SEBI Regulations: 49% Automatic
Banking - Private Sector: 74% (Automatic up to 49%)
Banking - Public Sector subject to Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80: 20%
Insurance Company: 49% Automatic
Pension Sector: 49% Automatic

Other Sectors
Multi Brand Retail Trading (MBRT): 51%
Power Exchanges registered under the Central Electricity Regulatory Commission (Power market) Regulations, 2010: 49% Automatic

Further, if you belong to any of the following industries, you may have to specifically go through the FDI Guidelines here to ensure that your category of operations is covered under the 100% Automatic route or there are additional conditions to fulfill.
- Agriculture and Plantation
- Mining
- Petroleum & Natural Gas
- Manufacturing
- Defence
- Broadcasting & Media
- Civil Aviation & Air Transport
- Construction & Infrastructure incl. Industrial Parks, Satellites
- Private Security Agencies 
- Telecom
- Trading
- E Commerce
- Single Brand Retail Trading (SBRT)
- Railways
- Asset Reconstruction Companies, Credit Information Services
- Pharmaceuticals

D. Upcoming Businesses Registering in Singapore

Among several others, the following seem to be upcoming sectors seeing a surge in registrations.

- Digitisation and AI
- Telemedicine
- Ed-tech
- Subscription as a Service (SaaS)
- E-commerce
- Broadcasting, Media and Live streaming
- Cyber Security
- Virtual Reality (VR) and Augmented Reality (AR)